Debts, Deficits and Growth in Interdependent Economies
We investigate the effects of budgetary policies on growth rates, external debt, real interest rates and the stock market valuation of capital in a two-country, overlapping-generations model of endogenous growth. A worldwide rise in the public debt/GDP ratio, or the share of government consumption, reduces savings and growth. They also increase real interest rates and depress the stock market because of the adjustment costs of investment. A relative rise in one country's debt/GDP ratio or its GDP share of government consumption results in a reduction in its ratio of external assets to GDP. Growth rates are equalized unless there are differences in investment adjustment costs or depreciation rates. Per capita output levels do not necessarily converge.
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|Date of creation:||1991|
|Date of revision:|
|Contact details of provider:|| Postal: TILBURG UNIVERSITY, CENTER FOR ECONOMIC RESEARCH, 5000 LE TILBURG THE NETHERLANDS.|
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- Robert J. Barro & Xavier Sala-I-Martin, 1992.
"Public Finance in Models of Economic Growth,"
Review of Economic Studies,
Oxford University Press, vol. 59(4), pages 645-661.
- Robert J. Barro & Xavier Sala-i-Martin, 1990. "Public Finance in Models of Economic Growth," NBER Working Papers 3362, National Bureau of Economic Research, Inc.
- Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
- Sala-I-Martin, X. & Barro, R.J., 1991. "Public Finance in Models of Economic Growth," Papers 640, Yale - Economic Growth Center.
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